What could happen if an insured makes a false representation?

When an insured makes a false representation, the insurance company has the right to contest a claim based on that misrepresentation. This principle stems from the idea of utmost good faith (uberrima fides) in insurance contracts, which requires that both parties disclose all relevant information truthfully. If a misrepresentation is discovered, particularly one that is material to the risk being insured, the insurer can argue that the contract is voidable. This means that the insurer may deny claims or even rescind the policy altogether, as the policy was based on inaccurate information provided by the insured.

In contrast, while it is possible for an insured to face legal consequences for fraudulent activities, such as criminal charges, this does not automatically follow from any false representation—it typically applies to more severe intentional deceit. Denying coverage automatically or reducing premium rates does not align with established practices regarding misrepresentations either, as these actions are not typically a direct consequence of a false representation in a policyholder's application or claims process.